The Reserve Bank of India on Wednesday hiked the benchmark lending rate by 40 basis points (bps) to 4.40 % to contain inflation that has remained above the target of 6% for the last three months. This happened during an unscheduled Monetary Policy Committee (MPC) meeting.
Banks are required to maintain a cash reserve of 4.5%. As a result, ₹ 87,000 crores of liquidity was sucked out of the banking system.
It is likely that home loans, auto loans and other EMIs are about to increase due to the hike.
The US Federal Reserve
The US Fed delivered the biggest interest rate hike since 2000, unleashing an aggressive policy action in order to combat soaring inflation. It has hiked the benchmark rate by 50 basis points and has signalled that it would continue to hike the rates in the next couple of meetings.
The Bank of England
The Bank of England’s Monetary Policy Committee approved a 25-basis point increase, taking the base interest rate up to 1%. They raised interest rates to their highest level in 13 years in a bid to tackle soaring inflation.
Affect seen on Indian Markets
Benchmark indices plummeted and investors lost about ₹ 6.27 lakh crores. The BSE Sensex was under massive selling pressure and tumbled 1300 points on Wednesday and then gained 33 points on Thursday.It closed at 55,702.23 points or a mere 0.060% higher. Similarly, the NSE Nifty tanked 391.50 points or 2.29 % to finish at 16,677.60 on Wednesday. It closed at 16,682.65 points or 0.030% higher on Thursday.
Some of the biggest losers in the 30 share pack (Sensex) were Bajaj Finance, Bajaj Finserv, Titan, IndusInd Bank, HDFC Bank, Maruti and RIL. However, PowerGrid, NTPC and Kotak Mahindra Bank managed to finish higher, rising up to 2.75%.
Here are a few sectors that will get impacted by the rate hike:
Banking Sector
Shares from the banking pack shed value in the last two days. Bank of Baroda dipped 7%, IndusInd Bank tumbled 8.54%, HDFC Bank (3.26%), Bandhan Bank (4.89%), AU Small Finance Bank (2.75%), ICICI Bank (2.21%), State Bank of India (2.92%) and Federal Bank (1.77%). The BSE Bank Index declined 2.65% to 40,584.36 points.
Realty Sector
The BSE realty index tumbled by 5.59 %. DLF tanked 7.8%, Indiabulls Real Estate declined 6.22%, Sunteck Realty went lower by 5.8%, Godrej Properties fell 10.82%, Sobha (8.79%), Oberoi Realty (5.36%) and Brigade Enterprises (2.17%) on the BSE.
“Given the escalations and skyrocketing prices of raw materials, buyers may become reluctant to borrow from banks at a higher rate of interest. Though RBI has maintained the benchmark lending rate at a record low for a long time, CREDAI-MCHI requests not to increase the rate further and to support the growth of industries,” said Boman Irani, President, CREDAI-MCHI,
He said that a sudden increase in the repo rate coupled with inflation will indeed impact the industry’s growth.
“Moreover, rising interest rates and inflationary trends in basic raw materials in construction including cement, steel, labour cost etc will add to the burden of the residential sector, which did significantly well in the previous quarter – Q1 2022,” said Anarock’s Chairman Anuj Puri.
Auto Stocks
Ashok Leyland tanked 2.33%, Bajaj Auto plunged 2.3 %, TVS Motor (3.33%), Maruti (3.66%), M&M(1.48 %) and Tata Motors (2.35%) among the auto counters. The auto Index fell by 2.06 % to 24,362.35 points during these two days.
The Rupee
The Rupee appreciated 24 paise to settle at 76.24 (provisional) against the US dollar on Thursday following RBI’s surprise rate hike ahead of the US Federal Reserve’s policy decision on Wednesday.
